Giverny Capital – 2007 Letter to Partners

It is not easy to have the right temperament toward market quotes. The vast majority of investors perceive the daily market quotes as an ultimate judge of value. At Giverny Capital, we do not evaluate the quality of an investment this way. In our mind, we are owners of the businesses we invest in. Consequently, we study the growth in underlying earnings of our companies and their long-term perspectives. Every year, we submit a table showing the growth of the intrinsic value of our businesses that we measure using the term invented by Warren Buffett: owner’s earnings.

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We therefore come to an estimate of the intrinsic value increase of our portfolio by adding to the growth in owner’s earnings, our average dividend rate (which is around 1% presently).